Gulf states expected to weather the oil slump

A US$2.2 trillion financial cushion and low debt will help Arabian Gulf states to weather the oil price slump that will lower economic growth to 3.4 per cent this year, according to the Institute of International Finance (IIF).

The forecast of the US-based global association of financial institutions is in line with those of the IMF.

The IIF forecast the UAE’s economy would grow 3.6 per cent this year, down from 4 per cent last year. It said fiscal deficit would come in at 4.3 per cent of GDP this year, versus a 6.7 per cent surplus last year.


Sultan Al Mansouri, the Minister of Economy, last month predicted growth this year would range between 4 and 4.5 per cent.

The six Gulf states are better positioned to ride out the oil price decline given that their gross public external assets are estimated at $2.2tn, or 120 per cent of GDP in 2014 and relatively small gross government debt of 13 per cent of GDP.

“For the short term, ample public foreign assets and low debt in the GCC countries and Algeria will mitigate the adverse effect of low oil prices on economic activity and allow public spending to continue growing, albeit at a lower pace than in recent years,” the IIF said in its report.

The IIF also lowered its estimate for Gulf growth for this year by 0.4 percentage points to 3.4 per cent from 3.9 per cent last year, citing the low oil price that will slash exports from Middle East and North Africa oil exporters to the tune of $300 billion this year.

The IMF had also forecast in January that tumbling oil prices would drain Gulf exports by $300bn this year, or a fifth of their economy.

In the GCC, aggregated current account surplus will shrink from $266bn last year to about $40bn this year, and the fiscal position will shift from a surplus of 4.6 per cent of GDP to a deficit of 7.4 per cent, the IIF said.

“While overall growth in the oil exporters will moderate and the large fiscal surpluses will decline or shift to significant deficits, low oil prices may encourage an acceleration and deepening of structural reform efforts to improve energy efficiency and diversify their economies,” the report said.

Such reforms could include broadening the tax base and raising the price of domestic petroleum products to lower the 5.5 per cent annual increase in domestic consumption.

dsaadi@thenational.ae

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